Daily Brief China: Glory Star New Media Group Holdings, Inner Mongolia Yili Industrial Group (A), Hong Kong Hang Seng Index, Giant Biogene Holding, SML Group, Growatt Technology, Central China Real Estate and more

• Glory Star New Media Group H (GSMG US) (GSMG), a leading digital media platform and content-driven e-commerce company in China, has entered a definitive privatisation transaction with Cheers Inc.
• Cheers is offering US$1.55/share, in cash, a 76% premium to GSMG’s undisturbed price, and a 22% premium to the US$1.27/share proposal from GSMG’s CEO Bing Zhang. 
• The buyer consortium owns ~72.8% of shares out and this Offer requires a two-thirds vote from shareholders. This looks done with expected completion this year. But it’s a low-balled Offer.

• In this insight, we discuss a pair trade involving going long on Inner Mongolia Yili Industrial Group (A) (600887 CH)(“Yili”) and going short on China Mengniu Dairy Co (2319 HK).
• Yili has more impressive financial metrics than China Mengniu Dairy in terms of ROE, operating margins, and sales growth. However, Yili is trading at lower EV/EBITDA than China Mengniu Dairy.
• Yili should be trading at premium valuation than China Mengniu Dairy. Therefore, we believe Yili is well poised to outperform China Mengniu Dairy’s share price in the next 12 months. 

• The Holding Foreign Companies Accountable Act (HFCAA) could result in China ADRs being delisted in 2024. The Accelerated HFCAA, if passed, will bring that date ahead to 2023.
• FTSE has announced its implementation plan to migrate the China ADRs in its indices to the local listings using an accelerated schedule.
• Expect a lot more secondary listings/ dual primary listing in Hong Kong over the next few months. The increase free float market cap could keep a lid on prices.

• Giant Biogene Holding (GBH HK) has filed for a Hong Kong IPO for raising as much as $1 billion. The company is China’s largest supplier of collagen-based skincare products.
• Through its dual-pronged “medical institution + mass consumer” sales strategy, the company has increased revenue to RMB1,553 million in 2021 from RMB956.7 million in 2019.
• The collagen-based skincare market in China is expected to grow from RMB9.4 billion in 2022 to RMB77.5 billion in 2027, at a CAGR of 52.6%, thereby offering significant growth opportunity.

• SML Group (SMLGZ HK) is looking to raise about US$200m in its upcoming Hong Kong IPO. The deal will be run by BNP Paribas.
• SML Group (SMLG) is a vertically integrated digital identification solutions provider. It primarily engages in developing, manufacturing and selling label and tag products with RFID, a leading item-level identification technology.
• SMLG operates globally across 24 countries and as of the latest practicable date (17 Jun 22), had 23 production facilities in 18 countries.

• Growatt Technology (1833969D CH) is looking to raise about US$500m in its upcoming Hong Kong IPO. The deal will be run by Credit Suisse and CICC.
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption and energy digitalization. 
• As of the Latest Practicable Date (20 Jun 2022), they had shipped over 2.7m PV Inverters, 268,000 energy storage inverters. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Central China Securities
• Powerlong Commercial Management Holdings
• Sawit Sumbermas Sarana